The deleveraging of financial institutions led to the financial crisis of 2007-2008 sometimes also ...

The deleveraging of financial institutions led to the financial crisis of 2007-2008 sometimes also referred to as the _____.
 a. stock crisis
  b. debt crisis
  c. stock market bubble
  d. bank run
  e. credit crisis

Question 2

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:
 a. impose a tax on production of the good in order to increase production.
  b. impose a tax on production of the good in order to decrease production.
  c. offer a subsidy for production of the good in order to increase production.
  d. offer a subsidy for production of the good in order to decrease production.

Question 3

According to rational expectations theory:
 a. a large reduction in unemployment can be achieved with a relatively small increase in inflation.
 b. people are not easily fooled by changes in government fiscal policy.
 c. inflation rates that rise 3 percentage points each year will keep unemployment below its natural rate for a sustained period of time.
  d. the Phillips curve will slope downward to the right, if people correctly anticipate the inflation rate.

Question 4

The financial crisis of 2007-2008 illustrated how important the integration of international financial markets could be in contributing to the spread of financial problems from one country to another. What solution is cited to curb the spread of financial problems from one country to another?
 a. Better regulation of financial institutions to ensure prudent risk taking
  b. Lowering the fiscal budget
  c. Reducing international investment
  d. Paying off debts from the Federal Reserve
  e. Mitigating lack of government transparency

Question 5

If the production of a particular good involves significant external benefits, to force the externality to be internalized the government might:
 a. impose a tax on production of the good in order to increase production.
  b. impose a tax on production of the good in order to decrease production.
  c. offer a subsidy for production of the good in order to increase production.
  d. offer a subsidy for production of the good in order to decrease production.

Question 6

Which of the following is false?
 a. Rational expectations theory suggests that government economic policies designed to alter aggregate demand to meet macroeconomic goals are of very limited effectiveness, because when policy targets become public, people will alter their own behavior from what it would otherwise have been, and in so doing, they largely negate the intended impact of policy changes.
  b. If changes in inflation surprise people, they will have little effect on unemployment or real output in the short run.
  c. An unanticipated increase in AD as a result of an expansionary monetary policy stimulates real output and employment in the short run, but an anticipated increase in AD does not.
  d. Unanticipated increases in AD expands output and employment in the short run, but only increases the price level in the long run.

Question 7

Which of the following resulted in the financial crisis in 2007-08?
 a. Falling international reserves
  b. Short-term investments made by China in the US
  c. Lack of transparency
  d. Bad loans on U.S. mortgages
  e. Fixed rates of interest

Question 8

A corrective tax equal to the external cost imposed on third parties levied on polluters will:
 a. eliminate all pollution.
 b. increase the level of pollution.
 c. force polluters to internalize the external cost resulting from their actions.
 d. usually have no impact whatsoever on pollution levels, but will generate tax revenue for the government.

Question 9

Which of the following is false?
 a. If people can anticipate the plans of policy makers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP.
  b. The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy's ability to achieve its intended economic goals.
  c. Rational expectation economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations.
  d. Catching consumers and businessmen off-guard with macroeconomic policy changes gets harder the more you try to do it.

Question 10

Which of the following increases the possibility of depreciation of the domestic currency in the foreign exchange market?
 a. An increase in the demand for domestic goods in the foreign market
  b. A decrease in total imports made by the domestic country
  c. A decrease in the interest rates in the domestic country
  d. An increase in the short-term foreign investments
  e. An increase in domestic production of import substitutes